Calculating Forfeiture Amounts to Withstand Eighth Amendment Challenges

Criminal defendants convicted of insurance fraud may challenge forfeiture amounts requested by prosecutors as excessive in violation of the Eighth Amendment to the U.S. Constitution. In recent years, various decisions by federal district courts in New York and the U.S. Court of Appeals for the Second Circuit have helped to explain the standard for calculating forfeiture amounts and whether they violate the Eighth Amendment.

Consider the case of Bryan Duncan and the recent forfeiture ruling by Southern District Judge Sidney H. Stein, in United States v. Duncan, No. 18-Cr-28918-Cr-289 (SHS) (S.D.N.Y. July 29, 2020).

Background

Federal prosecutors asserted that Duncan, Robert Locust, and Ryan Rainford (collectively, the defendants) defrauded businesses and insurance companies by staging trip-and-fall accidents throughout New York City and filing fraudulent lawsuits arising from those staged accidents. The government contended that the defendants instructed recruited patients to claim that they had sustained injuries to their knees, shoulders, and backs to reap high recoveries in personal injury lawsuits. According to the authorities, after the staged accidents, recruited patients were referred to specific attorneys who filed lawsuits against the owners of the accident sites or their insurance companies.

As the authorities alleged, the recruited patients also were instructed to receive ongoing medical treatment from certain doctors. Moreover, the government asserted, the fraud participants advised the recruited patients that if they intended to continue with their lawsuits, they had to undergo surgery – including discectomies, spinal fusions, non-surgical epidural injections, and knee and shoulder surgeries – to increase the value of their fraudulent lawsuits. As an incentive to getting surgery, the government said, the recruited patients were offered a payment after they completed surgery – generally between $1,000 and $1,500 – as well as a percentage of any settlement payment from their lawsuit.

Following a nine-day trial in May 2019, a jury convicted Duncan and the other defendants of conspiracy to commit mail and wire fraud. The jury also convicted Duncan of a second count of conspiracy to commit mail and wire fraud, along with one count of mail fraud and one count of wire fraud.

The government submitted a proposed forfeiture order to the court pursuant to 18 U.S.C. § 981(a)(1)(C) and 28 U.S.C. § 2461(c). Duncan argued that the forfeiture order requested by the government violated the Eighth Amendment’s prohibition against excessive fines.

The Standards

Under 18 U.S.C. § 981(a)(1)(C), “[a]ny property, real or personal, which constitutes or is derived from proceeds traceable” to mail or wire fraud, or to a conspiracy to commit mail or wire fraud, “is subject to forfeiture to the United States.” Under 18 U.S.C. § 981(a)(2)(A), “proceeds” means property of any kind obtained directly or indirectly as the result of the commission of the offense giving rise to forfeiture, and any property traceable thereto, and is not limited to the net gain or profit realized from the offense.

In the Second Circuit, once a defendant has been convicted of an offense on proof beyond a reasonable doubt, the government only is required to establish forfeitability by a preponderance of the evidence. See, e.g., United States v. Schlesinger, 396 F. Supp. 2d 267 (E.D.N.Y. 2005). The Second Circuit also has decided that the calculation of forfeiture amounts is not an “exact science.” United States v. Treacy, 639 F.3d 32 (2d Cir. 2011). Thus, a court need not establish the loss with precision but rather must make a “reasonable estimate of the loss, given the available information.” United States v. Uddin, 551 F.3d 176 (2d Cir. 2009).

A court considering whether a proposed forfeiture violates the Eighth Amendment’s prohibition against excessive fines applies the two-step inquiry established by the U.S. Supreme Court in United States v. Bajakajian, 524 U.S. 321 (1998).

At the first stage, the court must determine the applicability of the Excessive Fines Clause, which applies only to forfeitures that may be characterized, at least in part, as “punitive” – that is, forfeitures for which a defendant is personally liable. As the Supreme Court explained in Bajakajian, the Excessive Fines Clause limits the government’s power to extract payments, whether in cash or in kind, “as punishment for some offense.”

If the court concludes that the clause applies, it must proceed to the second step and determine whether the challenged forfeiture is unconstitutionally excessive. The Second Circuit has ruled that, at this point, the burden rests on the defendant to show the unconstitutionality of the forfeiture. See United States v. Viloski, 814 F.3d 104 (2d Cir. 2016).

To determine whether a forfeiture is unconstitutionally excessive, the court must assess whether it is “grossly disproportional” to the gravity of the defendant’s offense using four factors cited in Bajakajian:

1. The essence of the crime of the defendant and its relation to other criminal activity;
2. Whether the defendant fits into the class of persons for whom the statute was principally designed;
3. The maximum sentence and fine that could have been imposed; and
4. The nature of the harm caused by the defendant’s conduct.

Under Viloski, courts in the Second Circuit also may consider whether the forfeiture would deprive the defendant of his or her future ability to earn a living.

The Duncan Decision

In Duncan, the court explained that, at trial, the government presented evidence that Duncan had participated in two conspiracies, “Fraud Scheme-1” and “Fraud Scheme-2” and that the government sought the proceeds traceable to the commission of Fraud Scheme-2, for which Duncan had been convicted.

The court pointed out that the trial record demonstrated that, at some point in 2015, Duncan and another defendant, Kerry Gordon (who previously pled guilty before Judge Stein to conspiracy to commit mail and wire fraud, mail fraud, and wire fraud) stopped working on Fraud Scheme-1 and began operating the separate but substantially similar Fraud Scheme-2. To finance that scheme, Duncan and Gordon formed D&G Premier Solutions LLC, which made a gross profit from January 2015 through December 2018 of $1,610,140.75. The government sought 40 percent of that amount, or $644,056, based on the estimate of a cooperating witness that 40 percent of the deposits shown on D&G’s ledger came from trip-and-fall cases.

The court found that a preponderance of the evidence supported the government’s request. It noted the trial testimony of Jasmond Cunningham, who stated that while he was living in a homeless shelter, he was told about the possibility of making money through a fraudulent personal injury lawsuit; that he met with Duncan and other individuals interested in starting their own slip-and-fall scam; that Duncan instructed him about how to stage an accident and about the specific injuries to claim when he went to the hospital after the phony accident; that Duncan drove him to medical and legal appointments; that he underwent surgeries after Duncan told him that the lawsuit would be more profitable if he did so; and that Duncan gave him money orders as payment.

In addition to Cunningham’s testimony, the court said, the evidence showed that Fraud Scheme-2 employed many of the same lawyers, doctors, and runners as Fraud Scheme-1 and that the evidence demonstrated that Duncan and Gordon’s operation was a “fraud mill.”

The court then considered Duncan’s Eighth Amendment challenge.

First, the court found that the Excessive Fines Clause applied because the government’s proposed forfeiture order was punitive in nature. Citing to Viloski, the court said that the forfeiture would be “imposed at the culmination of a criminal proceeding that required a conviction of the underlying felony,” and that it “could not have been imposed upon an innocent party.”

Next, the court ruled that all four Bajakajian factors weighed against a finding that the government’s proposed forfeiture order was “grossly disproportional” in relation to the gravity of Duncan’s offense.

Regarding the first factor, the court found that Duncan had engaged in two multiyear conspiracies that involved repeated instances of mail and wire fraud to exploit vulnerable individuals and defraud insurance companies. The court also decided that the second factor was met because Duncan fell “comfortably” within the class of persons for whom the federal mail and wire fraud statutes were designed – that is, those who use facilities of interstate commerce to engage in fraudulent schemes.

With respect to the third factor, the court explained that the maximum fine under the Sentencing Guidelines was $240 million, or more than 370 times the proposed $644,056 forfeiture order, “which suggests that Congress did not view offenses like [Duncan’s] as trivial,” and which weighed in favor of the forfeiture’s constitutionality.

Considering the fourth factor, the court determined that the nature of the harm caused by Duncan’s conduct was extensive. It pointed out that, together, Duncan and Gordon had recruited at least 300 patients into their fraud and that Duncan was accountable for intended losses ranging conservatively between $25 million and $65 million.

The court acknowledged that it was extremely unlikely that Duncan would be able to pay the judgment over the course of his lifetime, but it rejected his contention that the forfeiture order was unconstitutional because it would deprive him of his livelihood. The court cited the Second Circuit’s statement in Viloski that “a forfeiture that deprives a defendant of his livelihood might nonetheless be constitutional, depending on his culpability or other circumstances,” and concluded that the “gravity of the conduct and the extensive harm that Duncan caused” supported the government’s proposed figure.

Conclusion

In some rather limited areas, the law regarding forfeiture-related issues remains a bit opaque. For example, in Honeycutt v. United States, 137 S.Ct. 1626 (2017), the U.S. Supreme Court held that 21 U.S.C. § 853(a)(1), which mandates forfeiture for certain drug crimes, does not permit the application of joint and several liability to forfeiture by co-conspirators who never possessed the tainted proceeds of their crimes. The Second Circuit still has not yet ruled on Honeycutt’s applicability to other criminal forfeiture statutes. See United States v. Tanner, 942 F.3d 60 (2d Cir. 2019) (“[W]e have not yet fully defined the parameters of Honeycutt.”).

As another example, although the Second Circuit in Viloski decided that a court reviewing a criminal forfeiture under the Excessive Fines Clause may consider whether the forfeiture would deprive the defendant of his or her future ability to earn a living, it further held that courts should not consider a defendant’s present personal circumstances, including age, health, and financial situation, as a distinct factor. The Second Circuit recognized in that decision, however, that it was possible that a person’s “health and financial condition” might bear on the person’s ability to make a living, and it added that personal circumstances “might thus be indirectly relevant to a proportionality determination.” Application of this test in practice may complicate Eighth Amendment analysis in certain instances.

Still, it is quite clear that criminal defendants convicted of insurance fraud face not only a prison sentence but also the very strong likelihood that they will have to forfeit the gains they received as a result of their crimes, within the limits permitted by the Eighth Amendment.

This article is reprinted with permission from the September 4, 2020 issue of the New York Law Journal. Copyright ALM Properties, Inc. Further duplication without permission is prohibited. All rights reserved.